A UK Business With 99% ARR for 3x FCF
Also includes 73% gross margins, 96% retention rates, and 50% renewal expansions.
I found a way to access a Bloomberg-level terminal for 90% less. Here’s how →
When you search for stocks using a bottom-up approach, you naturally start bumping into the currently-hated sectors.
For me, recently, this means software.
Two years ago, I didn’t come across a single software stock.
Today, I find them weekly.
This is natural, of course, after the SaaSpocalypse over the last twelve months, but it still surprises me.
The surprise is usually pleasant, because I optimise my search for businesses with net-cash and healthy FCF generation.
In other words, I’d much rather own a software business with its massive margins and zero capex costs, than a bolt manufacturer in rural Japan.
Right now, Mr Market is offering us that exact opportunity.
Today’s business has it all:
Net-cash is equal to almost half the market cap, 99% of revenue is recurring with 96% retention rates, and 50% renewal expansions.
The contracts are all sticky and embedded with governments and local authorities.
Every $1 the customer spends with this business actually saves that customer $12 in future costs.
They’re also expanding.
Between 2021-2024 they expanded at a CAGR of 59%.
Of course, there are a couple of reasons the market sold it off, but the question is; has the market gone too far, and is this now a bargain set-up?
Let’s take a look….